Real Property Appraisals: A Primer

Their home's purchase can be the most important transaction many of us will ever encounter. It doesn't matter if a main residence, an additional vacation property or a rental fixer upper, purchasing real property is a complex transaction that requires multiple parties to pull it all off.

The majority of the participants are very familiar. The real estate agent is the most known entity in the transaction. Next, the mortgage company provides the money necessary to bankroll the transaction. And ensuring all details of the sale are completed and that a clear title passes from the seller to the buyer is the title company.

To learn more about appraising, click here to see a short video or call us today to talk about your specific property.

So, what party is responsible for making sure the real estate is worth the amount being paid? This is where you meet the appraiser. We provide an unbiased opinion of what a buyer might expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Thompson Appraisal will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

Our first duty at Thompson Appraisal is to inspect the property to determine its true status. We must actually see features, such as the number of bedrooms and bathrooms, the location, living areas, etc, to ensure they really are there and are in the shape a reasonable buyer would expect them to be. To ensure the stated square footage has not been misrepresented and describe the layout of the property, the inspection often requires creating a sketch of the floorplan. Most importantly, we identify any obvious features - or defects - that would have an impact on the value of the house.

Following the inspection, we use two or three approaches to determining the value of the property: paired sales analysis and, in the case of a rental property, an income approach.

Cost Approach

This is where we use information on local construction costs, the cost of labor and other factors to determine how much it would cost to replace the property being appraised. This figure often sets the maximum on what a property would sell for. It's also the least used method.

Paired Sales Analysis

Appraisers become very familiar with the communities in which they work. They thoroughly understand the value of specific features to the people of that area. Then, the appraiser looks up recent transactions in the vicinity and finds properties which are 'comparable' to the home in question. By assigning a dollar value to certain items such as fireplaces, room layout, appliance upgrades, extra bathrooms or bedrooms, or quality of construction, we adjust the comparable properties so that they are more accurately in line with the features of subject.

  • If, for example, the comparable property has a fireplace and the subject does not, the appraiser may subtract the value of a fireplace from the sales price of the comparable home.
  • In the case where the subject has something such as an extra half bath that a comparable doesn't have, the appraiser might add the value of that bath to the comparable property.

A true estimate of what the subject could sell for can only be determined once all differences between the comps and the subject have been evaluated. At Thompson Appraisal, we are experts in knowing the value of real estate features in Odin and Marion County neighborhoods. The sales comparison approach to value is typically awarded the most importance when an appraisal is for a real estate exchange.

Valuation Using the Income Approach

A third method of valuing a property is sometimes applied when a neighborhood has a reasonable number of renter occupied properties. In this situation, the amount of income the real estate generates is factored in with other rents in the area for comparable properties to derive the current value.

Arriving at a Value Conclusion

Combining information from all approaches, the appraiser is then ready to document an estimated market value for the property at hand. It is important to note that while the appraised value is probably the most accurate indication of what a house is worth, it probably will not be the price at which the property closes. Depending on the specific circumstances of the buyer or seller, their level of urgency or a buyer's desire for that exact property, the closing price of a home can always be driven up or down.Regardless, the appraised value is typically employed as a guideline for lenders who don't want to loan a buyer more money than they could get back in case they had to sell the property again. The bottom line is, an appraiser from Thompson Appraisal will help you attain the most fair and balanced property value, so you can make the most informed real estate decisions.